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Is Failure the Norm in Business?

Posted on August 30, 2007

In the June 2007 issue of the Harvard Business Review Gardiner Morse sat down with theoretical economist Paul Omerod to talk about Omerod’s new book Why Most Things Fail. Considering how many entrepreneurial ventures fail I figured covering the topic here would be very useful.

While I have not read the book (yet) I learned from the HBR interview that Omerod’s essential argument is that failure is the the defining characteristic of biological, social and economic systems. Seems pretty glim doesn’t it? Omerod doesn’t think so.

Giving in to chance, expecting failure, and reacting flexibly, [Omerod] says, is essential to success.

As the interview continues Omerod compares businesses to biological entities in a couple interesting ways.

Patterns of Extinction: The extinction of companies, like biological entities, happen periodically rather than continuously (i.e. you will observe a sudden extinction of many companies or species followed by time with very few extinctions - plays right into the web bubble burst back in ‘99/’00). What’s also interesting is that large extinctions of companies and species happen at the same relative frequency.

Random Evolution Rules: Omerod feels that executives overestimate the control they have. He thinks that executives believe they are more like the “rational man” that economists always talk about when the influence they really have over outcomes is more a kin to a randomly mutating biological entity that proceeds without strategy. This of course leads us back to the point that reacting flexibly to new situations is more important than crafting strategy.

I think quoting the second half of Omerod’s closing thought here makes sense:

Companies should embrace the inherent randomness that drives success and failure and that no amount of cleverness or information can overcome. The companies that are most able to explore and innovate - something akin to random mutation - and then rapidly and flexibly adapt when an innovation succeeds or fails, will do best. I know the New Coke story is told too often, but it’s relevant here. Coke reacted rapidy and flexibly to the disaster, abandoning its meticulously crafted strategy. Imagine if Coke had stuck rigidly with its plan because that was its carefully considered, predetermined strategy?

What if Coke stuck by New Coke? There is no doubt the business would have suffered far more than it did by abandoning New Coke and going back to the original.

It seems that business, like biology, is all about adapting quickly when you need to. In the entrepreneurial world you could look at this two different ways. The first way being that you want to adapt in your current venture to keep it moving forward and growing. The second way being that you should “know when to fold ‘em” and simply move on to your next idea.

The second way discussed above brings me to another meme that has been discussed at length in the ‘ol blogosphere and that is the meme of age and entrepreneurship. Marc Andreessen had the best post on this subject in which he analyzed a paper by University of California psychology professor Dean Simonton that discusses age across many different fields.

What was most interesting about Marc’s analysis and what relates to subject of failure in business is this:

The odds of a hit versus a miss do not increase over time. The period’s of one’s career with the most hits will also have the most misses. So maximizing quantity — taking more swings at the bat — [has a] much higher payoff than trying to improve one’s batting average.

While failure does appear to be the norm it seems that with more failure will generally come more success. So there is a bright side to all of this failure talk after all.

To be a successful entrepreneur it seems that one must do two things well:

1. Be agile and create agile organizations that can react quickly to failures.

2. Try, try and try again. Continuing to push forward with new ideas will increase the odds of success.

Don’t be a afraid of failure. Embrace it and adapt accordingly.

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5 Comments so far
  1. Josh Dreller August 30, 2007 2:39 pm

    According to Scott Adams, we’d be hell out of luck without those 9 out of 10 businesses that fail.

    http://dilbertblog.typepad.com/the_dilbert_blog/2007/08/the-power-of-st.html

  2. […] Is Failure the Norm in Business?It seems that business, like biology, is all about adapting quickly when you need to. In the entrepreneurial world you could look at this two different ways. The first way being that you want to adapt in your current venture to keep it … […]

  3. […] Is Failure the Norm in Business?It seems that business, like biology, is all about adapting quickly when you need to. In the entrepreneurial world you could look at this two different ways. The first way being that you want to adapt in your current venture to keep it … […]

  4. […] to entrepreneurship because of the fact that the most successful entrepreneurs have simply tried more times than the […]

  5. […] Act boldly. Don’t keep changing trying to get it right. Act as if it is rightand most people will assume that it’s just how you want it. If you do have to tweak it (which you probably will) do it quietly without any fanfair. Stick to your guns. […]